Excerpt:.....the argument advanced on behalf of the assessee by her learned counsel is that, when income of one person is included in the income of another person, the deduction available to the first person, if an assessment is made in his own hands, should also be made available to the second person in whose hands such income is included. the learned departmental representative, on the other hand, submitted that section 64 does not provide for inclusion of total income but income arising to the spouse from the partnership firm, assets transferred, etc. therefore, only that income which is computed under a particular head after allowing deductions available under that section, is to be considered for inclusion under section 64. further, deductions specified under chapter via of the act are not to be.....

Judgment: 1. The assessee and her husband are partners in three firms. By invoking Section 64 of the income-tax Act, 1961 ('the Act') the ITO has clubbed the share income of the husband in the assessee's hands as the income of the assessee is higher than that of her husband (Explanation 1 to Section 64). The husband of the assessee has paid life insurance premium. The deduction under Section 80C of the Act has, however, not been allowed by the ITO.2. On appeal, it was claimed that as the income of the husband had been included in the assessee's hands under Section 64, the insurance premium on the husband's life paid by him should also have been allowed as a deduction. The AAC, following the decision of the Kerala High Court in P.K. Yeshodamma v. CIT [1973] 87 ITR 54, held that the rebate or deduction is admissible only in respect of the amount of premium paid by the assessee. As the premium has been paid by the assessee's husband, no deduction is admissible. The assessee is in appeal. The argument advanced on behalf of the assessee by her learned counsel is that, when income of one person is included in the income of another person, the deduction available to the first person, if an assessment is made in his own hands, should also be made available to the second person in whose hands such income is included. The learned departmental representative, on the other hand, submitted that Section 64 does not provide for inclusion of total income but income arising to the spouse from the partnership firm, assets transferred, etc. Therefore, only that income which is computed under a particular head after allowing deductions available under that section, is to be considered for inclusion under Section 64. Further, deductions specified under Chapter VIA of the Act are not to be allowed. In this case if the husband had any income, other than that includible in the hands of the wife under Section 64, deduction would be permissible to him out of such income.

The deduction is available to the individual and it is not relatabie to any particular source. Therefore, if the husband had property income, he could claim appropriate deductions under Section 80C when the property income is not includible in the hands of the spouse under Section 64. The distinction between total income and income being quite clear, the assessee, he argued, was not entitled to deduction under Section 80C out of life insurance premium paid by the husband.

3. We have given careful thought to the arguments advanced by both sides. As rightly stressed by the learned departmental representative, income specified in Section 64 is to be included in the hands of the spouse or the transferor, as the case may be. It does not refer to the total income. The first stage would be to determine the income arising to the spouse under Section 64. Naturally, while determining this income, all the permissible deductions, namely, the expenditure incurred in earning that income and other deductions which may be allowed while computing the income under the particular head, will be allowed. The net result is then taken over and included under Section 64 in the hands of the spouse. The deduction under Section 80C will come after this, for, Section 80C deduction is not an expenditure relating to the earning of the income. It is a special deduction given to the assessees and has no relation to the source from which the income is earned. Since the total income of the husband is not being included in the hands of the wife but only the income under Section 64, the deduction under Section 80C will not be available to the wife in this case unless she herself pays the life insurance premium.

4. Our attention was also drawn to the distortion introduced by Explanation 1 to Section 64. in the present case, if the income of the husband had been more than that of the wife, then the wife's income would have been included in the hands of the husband and relief under Section 80C would have been available to the husband. It might so happen that income might vary from year to year and like a pendulum the inclusion of income under Section 64 might swing from husband to wife or vice versa. In that case, relief under Section 80C would also vary from year to year. This, it was submitted, was inequitable.

We have already noticed that the arguments on behalf of the assessee have proceeded on the ground of equity. Equity cannot influence the interpretation of a section. The provisions of the various sections being what they are and total income being different from income under Section 64 and further application of relief under Chapter VIA coming at a stage later to the inclusion of income under Section 64, we have to hold that relief under Section 80C is admissible only to the person who has paid the life insurance premium and the deduction is not influenced by the transportation of income from one person to another.

It is true that the Explanation introduces certain anomalies in the matter of granting of deduction under Section 80C and the variations in the income from year to year might shift the deduction under Section 80C from one person to another alternatively. But it is for the Legislature to remedy this state of affairs. In the result, the appeal filed by the assessee is dismissed.